Keeping the Pipeline Filled at Merck

By MILT FREUDENHEIM

Published: February 16, 1992

RAHWAY, N.J.—
Every company has its legends. At Merck and Company the latest is about Proscar, the new drug that shrinks enlarged prostates and is awaiting Government approval. It involves a remote Caribbean mountain village with a population of male pseudohermaphrodites and an obscure medical paper about them. P. Roy Vagelos, Merck's chairman, seems never to tire of telling the story, and anyone inquiring about Proscar's prospects as the company's next billion-dollar megadrug is sure to hear it from other Merck executives as well. And no wonder, since the Proscar legend says a lot about survival in the bare-knuckles competitiveness of the drug industry these days, illustrating how basic research and unrelenting patience must be combined to bring a drug to market.

The story goes like this: In 1974, Dr. Julianne Imperato-McGinley of Cornell Medical College in New York told a conference on birth defects about a group of hermaphroditic children in the Caribbean. Appearing sexually ambiguous at birth, they were raised as girls. But at puberty they grew external genitalia and developed deep voices and male musculature. Her research group had found that a genetic trait caused a deficiency of an enzyme called 5-alpha reductase. This suppressed levels of the male hormone dihydrotestosterone, causing alteration of the male children's sexual development.

In the fall of 1975, copies of a monograph about the conference landed on the desks of Dr. Vagelos, then Merck's basic-research chief, and Glen Arth, a senior Merck biochemist. Like mosquitoes homing in on a picnic, they seized on a phrase in Dr. Imperato-McGinley's description of the children's physical characteristics when grown: "The prostate, however, remains small . . ."

Here, then, was a possible clue to a drug that would shrink an enlarged prostate, something that Merck -- and nearly every other drug company -- wanted to develop. If levels of dihydrotestosterone could be lowered with a drug that inhibited the enzyme's action, that drug would find an eager market among the 15 million American men plagued by enlarged prostate, an embarrassing and often painful condition which can block urine flow, interrupt sleep and cause serious infections. Almost on the Market

The rest, as they say, is history. Earlier this month, a scientific advisory committee at the Food and Drug Administration voted to recommend Merck's new prostate drug, Proscar, as safe and effective. The committee action makes it highly likely that the drug will win final F.D.A. approval, probably this summer.

On Wall Street, Merck in recent years has come to be regarded as almost god-like. Proscar seems likely to only burnish that image. Some analysts are predicting the drug will be generating $1 billion in annual revenues by 1996. If so, it will be following on the heels of other Merck blockbusters: Vasotec, a blood-pressure drug with $1.75 billion in sales last year, and cholesterol-lowering Mevacor, with $1.09 billion.

In fact, Merck is so wildly successful that increasing numbers of analysts, investors and competitors have begun to ask: How long can it keep winning?

"The big question for Merck is, 'What are you going to do for an encore?' " said Marc O. Mayer, an analyst with Sanford C. Bernstein, who, like most pharmaceutical-industry analysts, likes Merck's near-term prospects. On the other hand, said David Lippman at Dean Witter Reynolds, "I like Merck but I like Bristol-Myers Squibb better."

Pressures for lower drug prices are growing as fierce as the competition among the big multinational companies -- Merck, Bristol-Myers Squibb, Glaxo, SmithKline Beecham and Sandoz -- all of which are pouring billions of dollars into finding and marketing new drugs.

The pharmaceutical industry is also under increased scrutiny because of recent questions about the safety of products -- for example, Dow Corning's silicone breast implants and Upjohn's Halcion, a sleeping pill. But even industry critics generally give Merck good marks for its integrity and credibility. Merck "tends to be a lot less doctrinaire and more willing to consider the notion that safety sells products," said Linda Lipsen, Washington legislative counsel with Consumer's Union.

More bothersome is what Merck's next big drug after Proscar will be. "Merck does not appear to have other potential billion-dollar drugs that might be approved in the next two to three years," said Ronald Nordmann of Paine Webber Securities. Dr. Vagelos said he has the same concern, but he can take comfort from the fact that none of Merck's big drugs will lose their price-protecting patents until 1997, making it possible to keep its $1 billion-a-year research machine rolling, and to gear up for after-patent marketing. "It's a game we play," he said. "When patents end, we race to maintain the product flow."

And so far, Dr. Vagelos, a 62-year-old physician and biochemist who came to Merck in 1975 after stints at the National Institutes of Health in Bethesda, Md., and Washington University in St. Louis, has a reputation for keeping Merck ahead of the pack. Profits rose 19 percent last year, to $2.12 billion on sales of $8.6 billion. The stock, having been split twice in just over five years, closed on Friday at $148.25. The Price Pressures